NY Daily Record Since 1908
What is a “law office” or its 21st century iteration, “a virtual law office?”
Anyone asking these questions might say, look around — email, PDFs, drop boxes and Skype are the hallmarks of post-millennial law offices. Almost no one would suggest looking back to 1862 in the dark corners of the Judiciary Law.
Justice Richard A. Dollinger
But, the Court of Appeals, tasked with unearthing a 150-year-old statute, may soon provide an answer. The answer, in turn, may impact how non-resident lawyers who are admitted in New York practice in this state and iron out a conflict between the state appellate divisions in the process.
The high court is soon to hear oral argument in Arrowhead Capital Finance Ltd. v. Cheyne Specialty Finance Fund L.P. et al, 154 AD 3d 523 (1st Dept 2017), a case that revolves around Section 470 of the Judiciary Law and the consequences for non-compliance with its “mandatory-local-office” provisions.
Enacted in 1862, Section 470 of the Judiciary Law provides an attorney, admitted in New York, may practice here even if he resides in another state provided they have an “office for the transaction of law business … within the state.” NY JUD. LAW §470. The description of the form of “office” was largely designed to permit effectuation of service of papers: New York lawyers needed to be able to serve papers to opposing counsel without leaving the state.
The statute was interred for nearly a century in the pre-electronic practice of law. In the last four years, the New York courts have grappled with the definition of “office for transaction of business.” A string of cases has long held that “a physical office” is required to meet the test that a New York attorney needs to practice from a New York office. Kinder Morgan Energy Partners LP. v. Ace Am. Ins. Co., 51 AD 3d 580 (2st Dept 2008).
Nguyen
One non-resident attorney challenged the office requirement under the Privileges and Immunities clause of the federal Constitution, arguing that the rule unfairly impacted rights of attorneys admitted in New York but residing elsewhere.
A federal district invalidated the provision but, the Second Circuit referred the state law question to the New York Court of Appeals. In 2015, the Court of Appeals refused to retreat from the century-old “physical office” model, holding that the plain meaning of “office” when joined with the phrase “for the transaction of law business” required non-resident attorneys to “maintain a physical office in New York.” Schoenfeld v. State, 25 NY 3d 22, 25 (2105).
The Second Circuit, relying on the Court of Appeals determination, then denied the constitutional challenge, holding the law was enacted not as a protectionist purpose to favor New York resident attorneys but, rather, to provide a means whereby non-residents could establish a physical presence in the state akin to that of residents, thereby resolving a service concern while allowing non-residents to practice law in the state’s courts. Schoenfeld v. State, 821 F3d 273 (2d Cir. 2016).
Armed with a new tool in the litigation wars, attorneys in New York have recently sought to dismiss papers filed by non-resident attorneys unless they had “physical offices” in the state. In Marina Dist Dev. Co. v. Toledano, 2018 NYLJ LEXIS 2231 (Sup.Ct. New York Cty 2018), the non-resident attorney was a member of the New York City Bar Association which took phone messages, provided a conference room at its New York City office and forwarded mail to the attorney’s Philadelphia address. This “virtual office” was nothing more than an address, said the court, dismissing the action. Another “virtual office” — an address or an agent at a specified location, even if maintained by non-resident counsel — also resulted in dismissal in Law Off. of Angela Barker LLC v. Broxton, 60 Misc 3d 6 (Sup.Ct. App. Term 1st Dept 2018).
However, non-resident attorneys have found that of-counsel relationships or office-sharing agreements can survive attacks under Section 470. See e.g., Keenan v. Mitsubishi Estate, 228 AD 2d 330(1st Dept 1996); CA Construction Inc. v. Broadway Off. Props, LLC, 2010 Misc LEXIS 1591 (Sup.Ct. New York Cty 2010)(use of office space, desk, conference room and other accouterments created an office even though office not listed on firm’s Connecticut letterhead); Goldweber v. Goldberg, Ind. No. 650807/2105(Sup.Ct. New York Cty 2017)(payment of small monthly fee to rent conference room constituted an office). In addition, Section 470 does not apply to attorneys from other states, who can use the pro hac vice application to practice in New York in limited cases subject to the trial court’s discretion. Neal v. Ecolab, Inc., 252 AD 2d 716 (3d Dept 1998); 22 NYCRR 690.3.
In Arrowhead Capital, a Pennsylvania attorney, admitted to practice in New York, shared an office in New York City with a former client, but he had no sign for his office at the site, never had a phone at the site and never paid rent. The fact that the former client received mail and documents for the attorney did not constitute “an office” and even if the attorney hung a sign, that did not convert the space into an office under Section 470, the trial court concluded. The appellate court affirmed, and further held that even though the defendant waited until well after the litigation was underway, the defendant did not waive their right to contest non-compliance with Section 470 at any time during the pending action.
Now, the Court of Appeals must determine the consequences of non-compliance with Section 470. The First Department has uniformly held that non-compliance results in dismissal of claims or striking of any papers filed by the offending non-resident attorney. The Second and Third Departments invoke a less draconian remedy: the flaw can be cured by retaining New York counsel and the matter proceeds.
The distinction posed by the different appellate decisions can be critical: going back to square one or refiling an action may create difficulties under the statute of limitations and other complications. Conversely, allowing substitute counsel to step in, when a violation of Section 470 is discovered, may moot the impact of the statutory requirement as local counsel can simply take over the pending case. In that regard, the statute provides no guidance: While it directs that attorneys have New York offices, it makes no reference to a remedy for violation of its terms.
The consequence may also involve the timing of an application under Section 470. The appellant argues that the objecting counsel should be required to air the defect in an answer or by motion in the preliminary stages or forfeit the objection, an argument that triggers considerations under CPLR 3211(e) which requires that certain defenses be aired either in answer or a pre-answer motion to dismiss or the defenses are waived.
The consequences of a decision on what constitutes an “office” and the remedies for violating Section 470 may have widespread implications for non-resident New York attorneys, especially in the downstate region, where attorneys from multiple states may be admitted to New York but maintain principal offices elsewhere.
Richard A. Dollinger is a member of the New York Court of Claims and an acting Supreme Court Justice in Rochester. James Nguyen is a student at St. John Fisher College headed to law school next fall.
